Monday, August 6, 2018

Is the Medicare For All we want Australian?

While the American left debates what the term “Medicare for All” really means, it would be worthwhile to look at Australia’s program also known as Medicare. After studying the issue for years, I’ve come to think the unique features of Australian Medicare might just be the version of Medicare for All that American voters might actually most support.

In some ways, Australian Medicare is well to the left of Sen. Bernie Sanders’ (I-VT) Medicare for All Act of 2017, and in other ways it is to its right. Australia's system has a much higher degree of government ownership of hospitals but leaves a somewhat larger role for private insurance.

How it works

Under Australian Medicare everyone is covered, and health care is free at point of service as long as you go to a doctor who accepts the Medicare rate as full payment (most do) and only use the public hospitals. The public hospitals provide quality, no-frills health care (such as shared rooms instead of private rooms) with modest waits. An individual would be perfectly fine if they got all their care under this free system, and many do.

Australia also has many private hospitals that you can buy private insurance to pay for. These facilities provide short waits, greater provider choice, and perks like fancy private rooms.

The most interesting part of the Australian Medicare system to me, though, is how rates are set. The government sets a reimbursement rate it is willing to pay for a given service. Doctors at private offices can choose to accept the Medicare rate as full payment when they see a patient and are encouraged to do so with a bulk billing incentive. If they do, the patient pays nothing. Alternatively, the doctor can choose to add an additional fee that the patient needs to pay, only if the patient is clearly made aware of the additional fee in advance (so no surprise ER bills or similar nonsense). People can buy insurance to cover these additional fees.

The bulk billing incentive combined with the administrative hassle that is inherently created for any doctor's office if they choose to charge co-pays means the vast majority of provider visits are free.

Australian Medicare: three advantages

Fee negotiations strategy - One perennial issue with any government insurance program is choosing provider rates, and there is no one clear best answer. No matter how high the fees are, providers are always going to claim they aren’t high enough. For example, hospitals in America constantly claim to be losing money on Medicaid and Medicare patients despite all the economic evidence against cost shifting. Providers will try to scare the public with claims that low fees will result in a lack of appropriate care or rationing. These are actual potential concerns if rates are truly too low, but providers will claim they exist regardless, making it difficult to separate the noise from reality.  

Letting doctors charge more than the set rate while financially encouraging them not to is one tool to help with this fee-setting issue. It serves both as a relief valve and a warning system, as well as a bullshit detector.

As long as a majority of doctors accept the fee as full payment, it is a strong indication the fee is sufficient and that providers' attempts to get more money should be ignored. If for any procedure a majority of providers start charging a co-pay, it is an indication the fee might be too low and should be raised. It also means that if any fee is too low, the response would be more new co-pays instead of blunt, across-the-board reductions in the procedure.

Low cost - The Australian Medicare system doesn’t place a high value on giving people a choice of hospital or making sure every single provider is in the public system. Instead it focuses on making sure everyone can get access to necessary care somewhere. This lets Australia provide everyone with free care really cheaply. Australia spends a lower share of GDP on health care than Canada. There is strong evidence that most people would happily choose a system with less provider choice in exchange for lower costs. For example, among people who qualify for TRICARE, consumers overwhelmingly pick the less choice/lower cost option. In polling twice as many said their top priority for health care was reducing cost instead of increasing consumer choice.  

Channeling the rich people’s need to be special instead of fighting it - One thing that does not get talked about enough by single-payer supporters is that rich people are remarkably determined to get the "better," more expensive version of everything, even if it is in fact not better at all. People with money are also remarkably clever about finding ways to use their money to get the "better" option. A system can either actively try to fight this dynamic, or it can try to channel it in a less disruptive way. Many single-payer advocates in the United States want to try to fight this dynamic.

Fighting it can be very hard. Even in Canada, which has likely tried the hardest of any country to make their health care egalitarian, there are membership-based private clinics which function very much like private insurance. These raise a real problem. Rich people in Canada use their access to private clinics and private lab work to effectively cut the line for hospital services. As a result, the choice countries really face tends to be either letting the rich using their money to cut the line or creating a system so the rich at least fully pay for their own private line. Most single-payer countries around the world tend to have some form of private system that around 10% of the population uses.

While Australia promotes private insurance more than I think is optimal, I think channeling this rich-people impulse rather than fighting it is the better policy decision. If rich people want to waste their money on going to hospitals with fancy marble lobbies or paying for the privilege to serve as guinea pigs to test out new experimental treatments, I don’t think it is worth spending  political capital to try to stop them.


If Medicare for All comes to America, it very well might be the Australian version. By focusing on its main goal, Australian Medicare can provide everyone with free at-point-of-service care at an incredibly affordable price. It also has a fee system which does a good job of dealing with the most difficult problems of any single payer proposal in America: choosing the right reimbursement rate and dealing with people who insist they get the better option.